Companies procrastinate on lease accounting changes

According to a new survey 80% of CFOs at U.S. companies have not yet begun the transition to the upcoming lease accounting standard

The Financial Accounting Standards Board issued its long-awaited standard on lease accounting in February 2016, giving public companies until 2019 and private companies until 2020 to adopt it. The main change in the standard is putting operating leases on the balance sheet. However, a survey released last week by Robert Half Management Resources found most companies procrastinating on the transition.

The largest companies, with 1,000 or more employees, are ahead of small organizations with between 20 and 49 employees. Twenty-two percent of the biggest businesses have started the transition, compared to 17 percent of the smallest. A bigger percentage of the largest companies have at least started writing new accounting procedures and policies and developed a project plan to deal with gaps found in their diagnostic work.

On the other hand, small companies are more likely than big businesses to have identified staff who will be assigned to the transition, inventoried the systems changes to be made, and investigated lease and property systems.

The biggest businesses could be struggling with the scope of the transition, the survey found. CFOs at these companies were most likely to identify managing change and diagnosing the adjustments needed to be made as primary challenges.

Among all companies, those with 50 to 99 and 500 to 999 employees faced the most challenges finding staff with the necessary skills.

Robert Half found that among companies that have begun transitioning to the new standard, only 18 percent have finished the diagnostic work needed to determine how much effort will be required. The top pain points cited by CFOs who have begun taking steps include technology upgrades, staff training and change management.

Over two-thirds (68 percent) of the companies that have begun working on the transition have identified the team members and responsibilities needed for finishing the transition, while 67 percent have started or finished writing new accounting procedures. A slightly lower proportion (65 percent) have started or completed writing new accounting policies, along with inventoried and prioritized required systems changes.

“The new guidance is much more than accounting,” said Chris Wright, managing director of the financial reporting remediation and compliance practice at Protiviti, a Robert Half subsidiary. “It requires systems upgrades, new reporting processes throughout the business and updated training. The transition also necessitates a well-rounded change-management initiative, which is proving to be a massive effort, especially for large companies, and particularly coming on the heels of the adoption of the new revenue recognition standard.”

In terms of industry sectors, a larger percentage of wholesale (24 percent) and business services (22 percent) companies have begun the transition than organizations in other sectors. Less than half of retail businesses (46 percent) now in the adoption process said they have investigated lease and property management systems to facilitate adoption. Transportation CFOs appear to be experiencing the most difficulty finding professionals with the necessary expertise.

Companies in Boston, Dallas and Phoenix are ahead of other cities when it comes to preparing for the lease accounting standard. At least 23 percent of businesses in each of those cities have started transitioning to the new leasing standard, and at least 86 percent of those businesses have begun their diagnostic work.

Conversely, 10 percent of Houston and 12 percent of Denver companies have started to adopt the new standard. Of companies in Denver, only 58 percent of CFOs noted the diagnostic work has begun (compared to 82 percent nationally).

Difficulty finding skilled staff appears to be most acute in Boston, while technology updates presented the biggest challenge for companies in Phoenix and Houston. Dallas CFOs cited change management as particularly difficult.